February 21, 2024

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Motley Fool Issues Rare “All In” Buy Alert
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The reliability of dividend income and the potential for superior yields as dividends grow are two of the big reasons dividend stocks are so appealing. Dividend stocks are a smart asset to own in any diversified portfolio, but in volatile markets like we’re seeing today, they are an especially smart investment due to their consistency.
And some of the most reliable dividend stocks are in the real estate industry. Dividend Aristocrat and real estate investment trust (REIT) Realty Income (O 0.77%) is one of the longest-paying and most consistent real estate stocks out there.
With the company having made 27 years of consecutive dividend increases and paid over 626 monthly dividend payments, here’s a closer look at why this real estate dividend stock is a must-own stock for any dividend investor.
Realty Income has been in operation for over 53 years. Since going public in 1994, the company has grown its portfolio from 630 properties to now owning and leasing over 11,400 properties. The REIT originally focused primarily on leasing retail properties to big-name tenants like Walgreens, Dollar Tree, Home Depot, and Walmart among many others.
But as the REIT grew, so did its diversity. Today around 23% of its assets are in nonretail industries, and its properties can be found in three countries. The incredible growth it achieved over the past five decades has undoubtedly helped drive its dividend growth.
Since its IPO, the company has maintained a 5.1% median growth in adjusted funds from operation (AFFO), one of the most important metrics to illustrate a REITs profitability. It’s also grown its dividend at a compound rate of 4.4% during that same period and managed to outperform the S&P 500 for the last 25 years by nearly double.
Paying dividends is easy, but maintaining those dividends and increasing them over the long haul is no easy feat. Challenging economic conditions such as a recession can hurt a company’s earnings temporarily. If there isn’t sufficient cash flow or enough cash on hand, the company may be forced to cut its dividends to maintain its debt obligations.
That’s why stable cash flows and having a healthy balance sheet are so important for dividend stocks — and Realty Income has both. A net lease passes nearly all of the financial responsibility for managing and maintaining the property onto the tenant. This low-overhead cost to operating its portfolio of properties helps improve Realty Income’s gross margin with low tenant turnover due to the nature of the business. Plus the long-term nature of the leases, which can be 10 years or more, creates super-reliable income streams for the REIT.
Its revenues over the last year have grown by 54% and its portfolio is at 98.9% occupancy. That means of its 11,400 properties, only 132 are sitting empty. This is a staggering low vacancy rate and one of the lowest in history for the company. Its rents are growing around 2% year over year, which may not seem like much. But when you earn $3.1 billion in annualized base rent a 2% jump can be quite substantial.
Recessionary concerns and the impact one would have on the retail industry have caused some volatility in the stock price lately. But Realty Income has experienced and overcome many recessions before. The company is built to last, with a grade A balance sheet that makes it well positioned to overcome any recessionary challenges.
Its debt to earnings before interest, taxes, depreciation, and amortizatio (EBITDA) is 5.2 times. This is right around the REIT average of 5 times and considered healthy. Plus its payout ratio of 76% indicates its cash flows more than cover its monthly dividend payments.It also has $3.2 billion in liquidity, which is more than enough to cover its near-term debt maturities which come due in 2024 and beyond.
Realty Income’s A credit rating, incredible track record, and reliable dividend yield of 4.3% make it a stand-out buy for any dividend investor.

Liz Brumer-Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot and Walmart Inc. The Motley Fool has a disclosure policy.
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